Lots of times, negative fundamental newsflow around a stock/sector stops us from seeing the obvious. It takes lots of money to move large-cap stock and hence any breakout in Large-cap stock should not be treated with suspicion.
Case-in-point: Bharti Telecom
Source: Chartalert.com
Bharti Telecom stock broke out in July 2017 above well-defined resistance of 380 after a long time. The stock rallied to previous high and then it pulled back to 380 again offering a great opportunity. But what was the narrative: Telecom sector in deep trouble. How can Bharti stock rally? The narrative made so much sense. But see what Bharti stock did over following 4 weeks. It rallied 40%.
The stock chart is a great example of why one should blindly trust a large-cap breakout because you never know what’s driving the market/stock.
Another Obvious Breakout: Adani Enterprises in Jan 2017
Adani Enterprises stock broke out with a large candle above 87. It pulled back only to rally to 160. It has since then pulled back but only to rally back near 150-160 zone multiple times
Source: Chartalert.com
When it comes to making stock selection on breakout between large-cap and small-cap – always trust large cap because of higher probability of success
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers